The beleaguered 2.4 million square foot Destiny USA mall owned by Pyramid Development and located in Syracuse, New York ($430 million JPMCC 2014-DSTY) is anticipated to soon deliver over $350 million in losses to the CMBS bondholders, including an estimated write off ~60% of the AAA bonds.  The losses are being driven by a heavily discounted note sale to the owner as reported this week in Bloomberg.  The largest mall in New York never lived up to its expectations and has been in Special Servicing for some time.  Occupancy is estimated at ~70%.  When realized, this loss will be one of the largest for an individual CMBS loan.  

Interestingly, the CMBS debt is subject to approximately $235 million of senior PILOT financing that was rated Single A (“A”) – a lower rating than the $215 million of subordinated AAA-rated CMBS debt.  The latest appraisal values the collateral at approximately $200 million.

While we need more details on the specifics, this is the playbook we expect to see unfold for many of the larger underperforming regional malls and office buildings that have been permanently impaired by new working and shopping patterns post-COVID.

Pyramid is a talented operator and developer.  With a right-sized capital structure, they will seek to revive this struggling asset.  Their significant capital infusion is a positive development for the asset.